Nearly 4,000 charities could be spared the expense of a full audit if Lord Hodgson’s advice to increase the audit income threshold from £500,000 to £1m is adopted by ministers.
The recommendation is contained in Lord Hodgson’s review of the Charities Act 2006, which also suggests changes to the income thresholds for charity registration and reporting requirements.
Hodgson said: “A full audit is an expensive and time-consuming exercise and although it is right that large organisations should submit to this level of scrutiny, the current threshold of £500,000 seems a low level at which to impose this requirement. A level of £1m draws a better balance.”
And the ‘asset test’ that subjects organisations with assets of over £3.26m to audit scrutiny should be removed too.
Registration threshold raised by £20,000
Hodgson said he wanted to strike the right balance between avoiding tying up small charities in too much red tape, while also ensuring that unregistered charities are not disadvantaged.
The income threshold for registration should therefore be raised to £25,000 per year, but charities with lower incomes can still register if they wish. And any charity that wishes to claim tax relief from HMRC must be on the register irrespective of their income.
All charities that are registered should be required to send their accounts to the Commission, while all charities that are not on the register should be required to disclose this fact on their letterheads and in all their fundraising materials and cheques.
And, all registered charities with an annual income of less than £25,000 should be identified on the Commission’s register as ‘small’ alongside their registration number. “The intention of this is to improve the public perception that these charities are subject to little proactive regulatory oversight – and alert potential donors to this fact.”
But the new threshold proposal did not find favour with the NCVO. CEO Sir Stuart Etherington said: “This would risk shunting a large tranche of charities outside of the Charity Commission’s regulatory remit and injudiciously bolster the powers of HMRC over this group.”
Lord Hodgson also wants to address the transparency imbalance between registered charities and excepted charities, by continuing to lower the income threshold at which excepted charities must register. Within three years this threshold should reach £25,000, he said.
In Hodgson’s discussions with the sector for the review, the Standard Information Return was criticised as a duplication of information that can be found elsewhere, and he agreed it should be ditched.
Automated checks on charity accounts
He also suggested that the Charity Commission should look at installing IT systems that can conduct automatic basic validity checks on submitted accounts to make it easier to identify organisations with particular risks.
Charities would have to answer certain standard questions on their submitted documents, such as the proportion of government funding they receive, whether their trustees are paid and whether it is a member of the Fundraising Standards Board.
Such a system is already used by Companies House.
“If the business case is proven, I would very much hope that HM Treasury would commit to funding this important endeavour,” Lord Hodgson wrote.